FISERV, INC. and Subsidiaries Consolidated statements of operations Year ended December 31, 1995 1994 1993 REVENUES $703,380,000 $579,839,000 $467,863,000 ------------ ------------ ------------ COST OF REVENUES: Salaries, commissions and payroll related costs 330,845,000 281,651,000 223,271,000 Data processing expenses, rentals and telecommunication costs 95,798,000 81,320,000 72,524,000 Other operating expenses 125,498,000 109,975,000 90,162,000 Depreciation and amortization of property and equipment 38,480,000 31,350,000 22,450,000 Purchased incomplete software technology Note 2 172,970,000 Amortization of intangible assets 25,880,000 10,846,000 9,098,000 Capitalization of internally generated computer software-net (6,382,000) (9,599,000) (7,185,000) ------------ ------------ ------------ Total 783,089,000 505,543,000 410,320,000 ------------ ------------ ------------ OPERATING INCOME (LOSS) (79,709,000) 74,296,000 57,543,000 Interest expense - net 18,822,000 6,951,000 4,366,000 ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (98,531,000) 67,345,000 53,177,000 Income tax provision (credit) Note 4 (38,668,000) 26,938,000 20,464,000 ------------ ------------ ------------ NET INCOME (LOSS) $(59,863,000) $ 40,407,000 $ 32,713,000 ============ ============ ============ Net income (loss) per common and common equivalent share $(1.36) $0.99 $0.83 ============ ============ ============ Shares used in computing net income per share 44,008,000 40,735,000 39,455,000 ============ ============ ============ See notes to consolidated financial statements. FISERV, INC. and Subsidiaries Consolidated balance sheets December 31, 1995 1994 ASSETS Cash and cash equivalents Note 1 $ 59,743,000 $ 29,683,000 Accounts receivable 154,628,000 122,984,000 Prepaid expenses and other assets Note 1 63,893,000 34,760,000 Due on sale of securities 97,446,000 Investment securities Note 1 834,286,000 1,041,474,000 Other investments Note 1 55,748,000 64,777,000 Deferred income taxes Note 4 39,527,000 Property and equipment-net Note 1 148,343,000 114,966,000 Internally generated computer software-net 73,863,000 67,820,000 Identifiable intangible assets relating to acquisitions-net Note 1 57,270,000 36,487,000 Goodwill-net 300,552,000 148,394,000 -------------- -------------- TOTAL $1,885,299,000 $1,661,345,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 43,948,000 $ 22,060,000 Accrued expenses 59,614,000 59,742,000 Accrued income taxes 6,116,000 1,952,000 Deferred revenues 40,754,000 10,836,000 Trust account deposits 917,189,000 1,035,217,000 Long-term debt Note 3 381,361,000 143,864,000 Other obligations Note 3 2,055,000 6,152,000 Deferred income taxes Note 4 22,800,000 -------------- -------------- TOTAL LIABILITIES 1,451,037,000 1,302,623,000 COMMITMENTS AND CONTINGENCIES Note 6 SHAREHOLDERS' EQUITY: Common stock outstanding, 44,887,000 and 40,038,000 shares, respectively 449,000 400,000 Additional paid-in capital 315,800,000 184,748,000 Unrealized gain on investments 15,268,000 11,054,000 Accumulated earnings 102,745,000 162,520,000 -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 434,262,000 358,722,000 -------------- -------------- TOTAL $1,885,299,000 $1,661,345,000 ============== ============== See notes to consolidated financial statements. FISERV, INC. and Subsidiaries Consolidated statements of changes in shareholders' equity
Year ended December 31, 1995 1994 1993 SHARES ISSUED-75,000,000 AUTHORIZED: Balance at beginning of year 40,037,854 39,660,740 22,621,946 Shares issued in pooling of Lincoln Holdings, Inc. 880,970 Sale of common stock 1,403,911 Shares issued under stock plans-net 274,615 238,838 201,706 Shares issued for acquired companies 4,574,659 138,276 2,354,540 Stock split -- 3-for-2 12,197,667 ------------ ------------ ------------ Balance at end of year 44,887,128 40,037,854 39,660,740 ============ ============ ============ COMMON STOCK-PAR VALUE $.01 PER SHARE: Balance at beginning of year $ 400,000 $ 397,000 $ 226,000 Shares issued in pooling of Lincoln Holdings, Inc. 9,000 Sale of common stock 14,000 Shares issued under stock plans-net 3,000 2,000 2,000 Shares issued for acquired companies 46,000 1,000 24,000 Stock split -- 3-for-2 122,000 ------------ ------------ ------------ Balance at end of year 449,000 400,000 397,000 ============ ============ ============ CAPITAL IN EXCESS OF PAR VALUE: Balance at beginning of year 184,748,000 181,223,000 105,842,000 Acquired in pooling of Lincoln Holdings, Inc. 174,000 Sale of common stock 23,712,000 Shares issued under stock plans-net 670,000 2,660,000 324,000 Income tax reduction arising from the exercise of employee stock options 2,400,000 800,000 1,300,000 Shares issued for acquired companies 127,982,000 65,000 49,993,000 Stock split -- 3-for-2 (122,000) ------------ ------------ ------------ Balance at end of year 315,800,000 184,748,000 181,223,000 ============ ============ ============ UNREALIZED GAIN ON INVESTMENTS 15,268,000 11,054,000 9,230,000 ============ ============ ============ ACCUMULATED EARNINGS: Balance at beginning of year 162,520,000 122,023,000 86,405,000 Acquired in pooling of Lincoln Holdings, Inc. 2,974,000 Net income (loss) (59,863,000) 40,407,000 32,713,000 Foreign currency translation adjustment 88,000 90,000 (69,000) ------------ ------------ ------------ Balance at end of year 102,745,000 162,520,000 122,023,000 ============ ============ ============ TOTAL SHAREHOLDERS' EQUITY $434,262,000 $358,722,000 $312,873,000 ============ ============ ============
See notes to consolidated financial statements. FISERV, INC. and Subsidiaries Consolidated statements of cash flows
Year Ended December 31, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (59,863,000) $ 40,407,000 $ 32,713,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income taxes (58,952,000) 12,375,000 11,883,000 Depreciation and amortization of property and equipment 38,480,000 31,401,000 22,449,000 Amortization of intangible assets 25,880,000 10,846,000 9,098,000 Charge for incomplete software technology 172,970,000 Capitalization of internally generated computer software - net (6,382,000) (9,599,000) (7,185,000) ------------- ------------- ------------- 112,133,000 85,430,000 68,958,000 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (10,014,000) (12,194,000) (13,672,000) Prepaid expenses and other assets (23,709,000) (3,935,000) (10,482,000) Accounts payable and accrued expenses (4,843,000) (3,954,000) (6,411,000) Deferred revenue 9,283,000 (123,000) (54,000) Accrued income taxes 5,756,000 2,059,000 285,000 ------------- ------------- ------------- Net cash provided by operating activities 88,606,000 67,283,000 38,624,000 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (45,039,000) (53,193,000) (29,613,000) Investments and other assets 20,136,000 (26,545,000) (2,002,000) Payment for acquisition of businesses, net of cash acquired (258,237,000) (20,545,000) (113,268,000) Investment securities 207,603,000 (176,597,000) (90,216,000) Due on sale of securities (97,446,000) ------------- ------------- ------------- Net cash used by investing activities (172,983,000) (276,880,000) (235,099,000) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings and other long-term obligations 252,977,000 39,165,000 63,000,000 Repayment of borrowings and other long- term obligations (21,150,000) (12,720,000) (3,441,000) Issuance of common stock 638,000 1,918,000 24,036,000 Trust account deposits (118,028,000) 174,567,000 82,803,000 ------------- ------------- ------------- Net cash provided by financing activities 114,437,000 202,930,000 166,398,000 ------------- ------------- ------------- Change in cash and cash equivalents 30,060,000 (6,667,000) (30,077,000) Beginning balance 29,683,000 36,350,000 66,427,000 ------------- ------------- ------------- Ending balance $ 59,743,000 $ 29,683,000 $ 36,350,000 ============= ============= =============
See notes to consolidated financial statements. FIserv, Inc. and Subsidiaries Notes to consolidated financial statements for the years ended December 31, 1995, 1994 and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents Cash and cash equivalents comprise cash and investments with original maturities of 90 days or less. Prepaid Expenses and Other Assets Prepaid expenses and other assets at December 31, 1995 and 1994 include $17,817,000 and $7,723,000, respectively, relating to long-term contracts, the profit from which is being recognized ratably over the periods to be benefited. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Trust Account Deposits and Investment Securities The Company's trust administration subsidiaries accept money market deposits from trust customers and invest the funds in securities. Such amounts due trust depositors represent the primary source of funds for the Company's investment securities and amounted to $917,189,000 and $1,035,217,000 in 1995 and 1994, respectively. The related investment securities comprised the following at December 31, 1995 and 1994: Principal Carrying 1995 Amount Value Market Value - -------------------------------- ------------- ------------- ------------- U. S. Government and government agency obligations $553,384,000 $558,893,000 $559,000,000 Corporate bonds 119,100,000 118,891,000 118,716,000 Repurchase agreements 96,671,000 96,671,000 96,671,000 Other fixed income obligations 59,877,000 59,831,000 59,831,000 ------------- ------------- ------------- Total $829,032,000 $834,286,000 $834,218,000 ============= ============= ============= 1994 - -------------------------------- U. S. Government and government agency obligations $ 693,711,000 $ 696,665,000 $ 663,504,000 Corporate bonds 51,840,000 51,836,000 51,373,000 Repurchase agreements 226,581,000 226,581,000 226,581,000 Other fixed income obligations 68,050,000 66,392,000 65,079,000 ------------- ------------- ------------- Total $1,040,182,000 $1,041,474,000 $1,006,537,000 ============= ============= ============= Substantially all of the investments have contractual maturities of one year or less except for government agency obligations. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using primarily the straight-line method over the estimated useful lives of the assets, ranging from 3 to 40 years: December 31, 1995 1994 - ------------------------------------ ------------- ------------- Data processing equipment $149,143,000 $121,844,000 Purchased software 39,810,000 31,522,000 Buildings and leasehold improvements 51,195,000 35,407,000 Furniture and equipment 38,940,000 31,409,000 ------------ ------------- 279,088,000 220,182,000 Less accumulated depreciation and amortization 130,745,000 105,216,000 ------------ ------------- Total $148,343,000 $114,966,000 ============= ============= Internally Generated Computer Software Certain costs incurred to develop new software and enhance existing software are capitalized and amortized over the expected useful life of the product, generally five years. At December 31, 1995 and 1994, the unamortized portion of internally generated computer software costs amounted to $73,863,000 and $67,820,000, respectively; amortization of such costs charged to expense amounted to $19,998,000, $16,655,000, and $13,995,000 in 1995, 1994 and 1993, respectively. Routine maintenance of software products, design costs and development costs incurred prior to establishment of a product's technological feasibility are expensed as incurred. Intangible Assets Intangible assets relate to acquisitions and consist of the following at December 31: 1995 1994 ------------- ------------ Computer software acquired $ 30,949,000 $ 5,565,000 Non-competition agreements 10,744,000 19,370,000 Contract rights and other 48,012,000 33,818,000 ------------- ------------ 89,705,000 58,753,000 Less accumulated amortization 32,435,000 22,266,000 ------------- ------------ $ 57,270,000 $ 36,487,000 ============= ============ Goodwill $318,410,000 $158,679,000 Less accumulated amortization 17,858,000 10,285,000 ------------- ------------ $300,552,000 $148,394,000 ============= ============ Except as noted below, the cost allocated to computer software acquired in corporate acquisitions is being amortized on a straight-line basis over its expected useful life (generally five years or less). In connection with certain acquisitions, the Company has entered into non-competition agreements with the sellers. The values assigned are being amortized on the straight-line method over the periods covered by the agreements (generally five years or less). Costs allocated to various customer data processing contracts at the dates of acquisition are being amortized on a straight-line basis over the remaining terms of the contracts (generally six years or less). The excess of the purchase price over the estimated fair value of tangible and identifiable intangible assets acquired has been recorded as goodwill and is being amortized over forty years. The Company periodically reviews goodwill to assess recoverability, and impairments would be recognized in operating results if a permanent diminution in value were to occur. In connection with the acquisition of Information Technology, Inc. referred to in Note 2 below, the allocation of the purchase price to the various classes of assets was determined on the basis of an opinion expressed by a nationally recognized independent appraisal firm. Values determined for incomplete software have been expensed and values for completed software are being amortized utilizing accelerated methods. Income Taxes The consolidated financial statements are prepared on the accrual method of accounting. Deferred income taxes are provided for temporary differences between the Company's income for accounting and tax purposes. Revenue Recognition Revenues result primarily from the sale of data processing services to financial institutions, software sales, and administration of self-directed retirement plans. Such revenues are recognized as the related services are provided. Revenues include investment income of $35,695,000, $29,695,000, and $18,911,000, net of direct credits to depositors accounts of $27,561,000, $23,217,000, and $18,015,000 in 1995, 1994 and 1993, respectively. Deferred revenues consist primarily of advance billings for services and are recognized as revenue when the services are provided. Income per Share Income per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods, after giving effect to stock splits. Supplemental Cash Flow Information 1995 1994 1993 ----------- ---------- ---------- Interest paid $21,184,000 $ 8,871,000 $ 5,945,000 Income taxes paid 11,488,000 11,417,000 8,309,000 Liabilities assumed in acquisitions of businesses 49,279,000 3,416,000 47,000,000 2. ACQUISITIONS AND CAPITAL TRANSACTIONS Acquisitions During 1995, 1994 and 1993 the Company completed the following acquisitions:
Date Company Acquired Type of Business Consideration - -------------------------------------- -------- ------------------------------ ------------------ 1995 BankLink, Inc. Feb. 10 Cash management Cash for stock Information Technology, Inc. May 17 Financial processing systems Cash and stock for stock Lincoln Holdings, Inc. Aug. 1 Retirement plan administrators Stock for stock SRS, Inc. Sep. 29 Data processing Cash for stock Document Management Services Sep. 30 Item processing Cash for assets Division of ALLTEL Financial Information Services, Inc. Financial Information Trust Nov. 1 Data processing Cash for stock Outsource Technology L. C. Nov. 1 Data processing Cash for stock 1994: National Embossing Company, Inc. Apr. 19 Automated card services Cash for stock Boatmen's Information Systems May 2 Data processing Cash for assets data processing business Federal Home Loan Bank of Atlanta Aug. 19 Item processing Cash for assets item processing contracts Cincinnati Bell Information Systems Nov. 30 Image and document Cash for assets banking business management services RECOM Associates, Inc. Dec. 30 Network integration services Stock for stock 1993: Tomahawk Holding, Inc. and Feb. 10 Data processing for banks, Cash and stock its wholly-owned subsidiary thrifts and credit unions for stock Basis Information Technologies, Inc. IPC Service Corporation Mar. 2 Item processing Cash for assets EDS item processing May 17 Item processing Cash for assets contracts Datatronix Financial Services Jun. 25 Item processing Stock for stock Data Line Service Company Jul. 13 Data processing for thrifts Cash for stock Financial Processors, Inc. and Nov. 8 Data processing for banks Cash for stock Financial Data Systems Item processing Cash for assets Financial Institution Outsourcing and Nov. 30 Data processing for banks Cash for assets Data-Link Systems, Inc. Mortgage banking services Cash for stock
Certain of the acquisition agreements provide for additional cash payments contingent upon the attainment of specified revenue goals. Generally, the acquisitions were accounted for as purchases and, accordingly, the operations of the acquired companies are included in the consolidated financial statements since their respective dates of acquisition as set forth above. Certain of the acquisitions were accounted for as poolings of interests. However, except for the acquisition of Lincoln Holdings, Inc. (LHI), prior year financial statements were not restated due to immateriality. Results of operations of LHI have been included with those of the Company for all periods presented. Combined and separate results of the Company and LHI during the periods preceding the quarter ended June 30, 1995 and pro forma combined results, including preacquisition results of Information Technology, Inc. (ITI) for the years ended December 31, 1995 and 1994 (in thousands of dollars) were as follows:
Pro forma Company LHI Combined ITI combined ------------------ ---------- ----------- ---------- (unaudited) Quarter ended March 31, 1995 (unaudited) Revenues $152,605 $4,574 $157,179 Net income 10,449 792 11,241 Year ended December 31, 1995 Revenues 685,582 17,798 703,380 $25,435 $728,815 Net income (63,018) 3,155 (59,863) 2,811 (57,052) Year ended December 31, 1994 Revenues 563,590 16,249 579,839 60,868 640,707 Net income 37,664 2,743 40,407 5,885 46,292 Year ended December 31, 1993 Revenues 454,692 13,171 467,863 Net income 30,693 2,020 32,713
The acquisition of ITI was consummated for a consideration of approximately $377 million comprising approximately 4,574,000 shares of common stock of the Company and $249 million cash, including acquisition costs. Approximately 880,000 shares of common stock of the Company were issued in the acquisition of LHI. Net income of the Company has been determined after a pretax charge of $182.9 million relating to the writeoff of incomplete software technology and accelerated amortization of completed software relating to the acquisition of ITI. Accordingly, net income was reduced by $109.6 million, or $2.49 a share relating to such charges. Stock Purchase and Stock Option Plans The Company has a Restricted Stock Purchase Plan, a qualified Incentive Stock Option Plan and a Non- Qualified Stock Option Plan, each of which provide for grants of common stock to employees for a price not less than 100% of the fair value of the shares at the date of grant. There has been no recent activity in the Restricted Stock Purchase Plan. In general, 20% of the option shares awarded under the Incentive and Non-Qualified Stock Option Plans may be purchased annually and expire, generally, five to ten years from the date of the award. Plan activity during 1993, 1994 and 1995, adjusted for a 3-for-2 split effective in May 1993, is summarized as follows: Shares ----------------------- Non- Price Incentive Qualified Range ------------ ----------- ------------- Outstanding, December 31, 1992 1,880,116 $5.56-16.00 Granted 589,850 18.50-20.17 Assumed from Datatronix 76,895 66,415 1.63-7.10 Forfeited (32,550) Exercised (23,590) (277,027) 1.63-15.56 ------------ ----------- Outstanding, December 31, 1993 53,305 2,226,804 1.63-20.17 Granted 559,497 20.00-22.50 Forfeited (3,380) (102,945) Exercised (19,505) (211,529) 1.63-18.50 ------------ ----------- Outstanding, December 31, 1994 30,420 2,471,827 1.63-22.50 Granted 440,434 21.50-27.50 Forfeited (115,493) Exercised (10,140) (413,588) 1.63-21.81 ------------ ----------- OUTSTANDING, DECEMBER 31, 1995 20,280 2,383,180 5.56-27.50 ============ =========== SHARES EXERCISABLE, DECEMBER 31, 1995 7,774 1,300,455 ============ =========== Options outstanding include 158,819 and 63,686 shares granted in 1994 and 1995 at $20.00 and $22.00 a share, respectively, under a stock purchase plan requiring exercise within 30 days after a two-year period beginning on the date of grant. 3. LONG-TERM DEBT AND OTHER OBLIGATIONS The Company has available a $300,000,000 unsecured line of credit and commercial paper facility with a group of banks maturing in 2000 of which $247,712,000 was in use at December 31, 1995 at an average rate of 6.25%. The loan agreements covering the Company's long-term borrowings contain certain restrictive covenants including, among other things, the maintenance of minimum net worth and various operating ratios with which the Company was in compliance at December 31, 1995. A facility fee ranging from .175% to .325% per annum is required on the entire bank line regardless of usage. The facility is reduced to $255,000,000, $210,000,000 and $150,000,000, respectively, on May 17, 1997, 1998 and 1999 and expires on May 17, 2000. Long-term debt and other obligations outstanding at the respective year-ends comprised the following: December 31, 1995 1994 - ----------------------------------------- ------------ ------------ 9.45% senior notes payable, due 1996-2000 $ 21,429,000 $ 25,714,000 9.75% senior notes payable, due 1996-2001 15,000,000 17,500,000 8.00% senior notes payable, due 1999-2005 90,000,000 Bank notes and commercial paper 254,932,000 100,650,000 Other obligations 2,055,000 6,152,000 ------------ ------------ $383,416,000 $150,016,000 ============ ============ Annual principal payments required under the terms of the long-term agreements were as follows at December 31, 1995: Year - ------------------------------------------------ 1996 $ 9,781,000 1997 10,712,000 1998 45,780,000 1999 80,371,000 2000 169,877,000 Thereafter 66,895,000 ------------ $383,416,000 ============ Interest expense with respect to long-term debt and other obligations amounted to $22,006,000, $9,228,000 and $6,374,000 in 1995, 1994 and 1993, respectively. 4. INCOME TAXES A reconciliation of recorded income tax expense with income tax computed at the statutory federal tax rates follows: 1995 1994 1993 ------------- ----------- ------------ Statutory federal tax rate 35% 35% 35% Tax computed at statutory rate $(34,486,000) $23,571,000 $18,612,000 State income taxes net of federal effect (5,113,000) 2,792,000 2,647,000 Tax exempt income (688,000) (470,000) (326,000) Other 1,619,000 1,045,000 (469,000) ------------- ----------- ----------- Recorded income tax expense $(38,668,000) $26,938,000 $20,464,000 ============= =========== ============ The provision for income taxes consisted of the following: 1995 1994 1993 ------------- ----------- ----------- Currently Payable $ 17,884,000 $13,763,000 $ 7,280,000 Tax reduction credited to capital in excess of par value 2,400,000 800,000 1,300,000 Deferred (58,952,000) 12,375,000 11,884,000 ------------- ----------- ----------- Total $(38,668,000) $26,938,000 $20,464,000 ============= =========== =========== The approximate tax effects of temporary differences at December 31, 1995 and 1994 were as follows: 1995 1994 ----------- ------------ Allowance for doubtful accounts $ 2,319,000 $ 1,571,000 Accrued expenses not currently deductible 7,769,000 11,392,000 Deferred revenue 9,122,000 857,000 Other 1,728,000 1,074,000 Net operating loss and tax credit carryforwards 6,739,000 5,901,000 Deferred costs (9,143,000) (4,911,000) Internally generated capitalized software (30,283,000) (27,120,000) Excess of tax over book depreciation and amortization (4,419,000) (4,069,000) Purchased incomplete software technology 66,305,000 Unrealized gain on investments (10,610,000) (7,495,000) ------------------------ Total deferred income taxes $ 39,527,000 $(22,800,000) ========== ============= The net operating loss and tax credit carryforwards have expiration dates ranging from 1996 through 2010. 5. EMPLOYEE BENEFIT PROGRAMS The Company and its subsidiaries have contributory savings plans covering substantially all employees, under which eligible participants may elect to contribute a specified percentage of their salaries, subject to certain limitations. The Company makes matching contributions, subject to certain limitations, and also makes discretionary contributions based upon the attainment of certain profit goals. Company contributions vest at the rate of 20% for each year of service. Contributions charged to operations under these plans approximated $8,144,000, $8,900,000 and $6,346,000 in 1995, 1994 and 1993, respectively. 6. LEASES, OTHER COMMITMENTS AND CONTINGENCIES Leases Future minimum rental payments, as of December 31, 1995, on various operating leases for office facilities and equipment were due as follows: 1996 $ 32,937,000 1997 25,833,000 1998 19,469,000 1999 11,879,000 2000 6,495,000 Thereafter 10,493,000 ------------ Total minimum payments $107,106,000 ============ Rent expense applicable to all operating leases was approximately $48,038,000, $43,065,000 and $45,658,000 in 1995, 1994 and 1993, respectively. Other Commitments and Contingencies The Company's trust administration subsidiaries had fiduciary responsibility for the administration of approximately $17 billion in trust funds as of December 31, 1995. With the exception of the trust account investments discussed in Note 1, such amounts are not included in the accompanying balance sheets. In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits are not expected to have a material adverse effect on the financial statements of the Company. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, the relative percentage which certain items in the Company's consolidated statements of income bear to revenues and the percentage change in those items from period to period. The table is based upon the accompanying supplemental schedule which excludes certain charges to 1995 operations associated with the acquisition of Information Technology, Inc.
Percentage of Revenues Year Ended December 31, Increase (Decrease) 1995 1994 1993 1995 vs. 1994 1994 vs. 1993 ------- ------- -------- ------------- --------- Revenues 100.0% 100.0% 100.0% 21.3% 23.9% ------- ------- -------- Cost of revenues: Salaries, commissions and payroll related costs 47.0 48.6 47.7 17.5 26.1 Data processing expenses, rentals and telecommunication costs 13.6 14.0 15.5 17.8 12.1 Other operating expenses 17.8 19.0 19.3 14.1 22.0 Depreciation and amortization of equipment and improvements 5.5 5.4 4.8 22.7 39.6 Amortization of intangible assets 2.3 1.9 1.9 47.2 19.2 Capitalization of internally generated computer software - net (0.9) (1.7) (1.5) (33.5) 33.6 ------- ------- -------- Total cost of revenues 85.3 87.2 87.7 18.7 23.2 ------- ------- -------- Operating income 14.7% 12.8% 12.3% 38.9 29.1 ======= ======= ======= Income before income taxes 12.0% 11.6% 11.4% 25.2 26.6 ======= ======= ======= Net income 7.1% 7.0% 7.0% 23.2 23.5 ======= ======= =======
The following discussion is based upon the accompanying supplemental schedule which excludes certain charges to 1995 operations associated with the acquisition of Information Technology, Inc. aggregating $182.9 million. Revenues increased $123,541,000 in 1995 and $111,976,000 in 1994. Approximately 55% of the 1995 growth and 80% of the 1994 growth resulted from the inclusion of revenues from the date of purchase of acquired businesses as set forth in Note 2 to the financial statements and the balance in each year from the addition of new clients, growth in the transaction volume experienced by existing clients and price increases. As a percentage of revenues, cost of revenues decreased 1.9% from 1994 to 1995 and .5% from 1993 to 1994. The make up of cost of revenues has been significantly affected in both years by business acquisitions and by changes in the mix of the Company's business as item processing and electronic funds transfer operations have enjoyed an increasing percentage of total revenues. A significant portion of the purchase price of the Company's acquisitions has been allocated to intangible assets, such as client contracts, computer software, non-competition agreements and goodwill, which are being amortized over time, generally three to forty years. Amortization of these costs increased $5,116,000 from 1994 to 1995 and $1,748,000 from 1993 to 1994. As a percentage of revenues, these costs have remained relatively constant from 1993 to 1994 and increased in 1995. Capitalization of internally generated computer software is stated net of amortization and increased $2,414,000 in 1994 and decreased $3,217,000 in 1995. As a percentage of revenues, net capitalized software remained relatively constant in 1994 but decreased .8% from 1994 to 1995. This trend is likely to continue. Operating income increased $28,883,000 in 1995 and $16,753,000 in 1994. As a percentage of revenues, operating income increased 1.9% in 1995 and .5% in 1994. The effective income tax rate was 41% in 1995, 40% in 1994, and 39% in 1993. The trend to higher income tax rates results from net increases in non- deductible permanent differences and an increase in 1993 in the federal income tax rate. The effective income tax rate for 1996 is expected to remain at 41%. The Company's growth has been accomplished largely through the acquisition of entities engaged in businesses which are complementary to its operations. Management believes that a number of acquisition candidates are available which would further enhance its competitive position and plans to pursue them vigorously. Management is engaged in an ongoing program to reduce expenses related to acquisitions by eliminating operating redundancies. The Company's approach has been to move slowly in achieving this goal in order to minimize the amount of disruption experienced by its clients and the potential loss of clients due to this program. The following table sets forth (in thousands, except per share data) certain financial highlights and pro forma information for 1995, 1994 and 1993. Year Ended December 31, 1995 1994 1993 - ----------------------- --------- --------- -------- Revenues $703,380 $579,839 $467,863 Net income (loss) (59,863) 40,407 32,713 --------- -------- -------- Net income (loss) per share $(1.36) $0.99 $0.83 --------- -------- -------- Net income as originally reported and before certain charges related to acquisition of Information Technology, Inc. 49,771 37,664 30,693 --------- -------- -------- Net income per share as originally reported and before certain charges related to acquisition of Information Technology, Inc. $1.13 $0.95 $0.80 --------- -------- -------- The charges related to acquisition of Information Technology, Inc. (ITI) are a pre-tax special, one-time, non-cash charge of $173 million to expense the purchased ITI Premier II research and development and a pre-tax charge of $9.9 million for the accelerated amortization of the completed ITI Premier I software. The combined after-tax charge was $109.6 million ($2.49 per share). Liquidity and Capital Resources The following table summarizes (in thousands of dollars) the Company's primary sources of funds: Year Ended December 31, 1995 1994 1993 --------- -------- -------- Cash provided by operating activities $ 88,606 $ 67,283 $ 38,624 Issuance of common stock-net 638 1,918 24,036 Decrease (increase) in other investments 12,265 (28,575) (9,415) Increase in net borrowings 231,827 26,445 59,559 --------- -------- -------- $333,336 $ 67,071 $112,804 ========= ======== ======== The Company has applied a significant portion of its cash flow from operations and proceeds of its common stock offerings and additional borrowings to acquisitions. The 1994 increase in capital expenditures was abnormally high because of the need to provide a new facility and equipment for Financial Institution Outsourcing, acquired in November 1993. The Company believes that its cash flow from operations together with other available sources of funds will be adequate to meet its funding requirements. In the event that the Company makes significant future acquisitions, however, it may raise funds through additional borrowings or issuance of securities. Consolidated Statements of Income Supplemental Schedule (unaudited) Year ended December 31, 1995 1994 1993 - ----------------------- ------------ ------------ ------------ Revenues $703,380,000 $579,839,000 $467,863,000 ------------ ------------ ------------ Cost of revenues: Salaries, commissions and payroll related costs 330,845,000 281,651,000 223,271,000 Data processing expenses, rentals and telecommunication costs 95,798,000 81,320,000 72,524,000 Other expenses 125,498,000 109,975,000 90,162,000 Depreciation and amortization of property and equipment 38,480,000 31,350,000 22,450,000 Amortization of intangible assets 15,962,000 10,846,000 9,098,000 Capitalization of internally generated computer software-net (6,382,000) (9,599,000) (7,185,000) ------------ ------------ ------------ Total 600,201,000 505,543,000 410,320,000 ------------ ------------ ------------ Operating income 103,179,000 74,296,000 57,543,000 Interest expense - net 18,822,000 6,951,000 4,366,000 ------------ ------------ ------------ Income before income taxes 84,357,000 67,345,000 53,177,000 Income tax provision 34,586,000 26,938,000 20,464,000 ------------ ------------ ------------ Net income $ 49,771,000 $ 40,407,000 $ 32,713,000 Net income per common and common equivalent share $1.13 $0.99 $0.83 ============ ============ ============ Net income per common and common equivalent share as originally $1.13 $0.95 $0.80 reported ============ ============ ============ Shares used in computing net income per share 44,008,000 40,735,000 39,455,000 ============ ============ ============ Selected Financial Data The following data (in thousands, except per share data), which has been materially affected by acquisitions, should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Annual Report.
Year Ended December 31, 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- -------- Revenues $ 703,380 $ 579,839 $ 467,863 $ 341,448 $288,450 Income (loss) before income taxes (98,531) 67,345 53,177 39,291 29,703 Income taxes (credit) (38,668) 26,938 20,464 14,925 10,686 Net income (loss) (59,863) 40,407 32,713 24,366 19,017 Net income (loss) per share $(1.36) $0.99 $0.83 $0.69 $0.57 ---------- ---------- ---------- ---------- -------- Total Assets $1,885,299 $1,661,345 $1,395,403 $1,097,339 $863,499 Long-term debt and other long- term obligations 383,416 150,016 122,417 59,472 57,768 Shareholders' equity 434,262 358,722 312,873 195,630 168,683 ---------- ---------- ---------- ---------- --------
Note: The above information has been restated to recognize (1) 3-for-2 stock splits effective in May 1993, June 1992 and July 1991 and (2) the acquisition in 1995 of Lincoln Holdings, Inc. accounted for as a pooling of interests. QUARTERLY FINANCIAL INFORMATION for the years ended December 31, 1995 and 1994 (Unaudited) (Amounts in thousands, except per share data)
Quarters 1995 First Second Third Fourth Total -------- -------- -------- -------- -------- Revenues $157,179 $173,470 $176,922 $195,809 $703,380 -------- -------- -------- -------- -------- Cost of revenues 136,288 148,725 148,286 349,790 783,089 -------- -------- -------- -------- -------- Operating income (loss) 20,891 24,745 28,636 (153,981) (79,709) -------- -------- -------- -------- -------- Income (loss) before income taxes 19,054 20,308 22,223 (160,116) (98,531) -------- -------- -------- -------- -------- Income taxes 7,813 8,326 9,111 (63,918) (38,668) -------- -------- -------- -------- -------- Net income (loss) $ 11,241 $ 11,982 $ 13,112 $(96,198) $(59,863) -------- -------- -------- -------- -------- Net income (loss) per share $0.27 $0.28 $0.29 $(2.10) $(1.36) -------- -------- -------- -------- -------- 1994 Revenues $139,852 $139,801 $143,661 $156,525 $579,839 -------- -------- -------- -------- -------- Cost of revenues 122,651 121,379 124,694 136,819 505,543 -------- -------- -------- -------- -------- Operating income 17,201 18,422 18,967 19,706 74,296 -------- -------- -------- -------- -------- Income before income taxes 15,627 16,790 17,154 17,774 67,345 -------- -------- -------- -------- -------- Income taxes 6,251 6,716 6,861 7,110 26,938 -------- -------- -------- -------- -------- Net income $ 9,376 $ 10,074 $ 10,293 $ 10,664 $ 40,407 -------- -------- -------- -------- -------- Net income per share $0.23 $0.25 $0.25 $0.26 $0.99 -------- -------- -------- -------- --------
The above information has been restated to recognize the acquisition in 1995 of Lincoln Holdings, Inc. accounted for on a pooling of interests basis. Market Price Information The following information relates to the closing price of the Company's $.01 par value common stock, which is traded on the over-the-counter market and is quoted on the NASDAQ National Market System under the symbol FISV. 1995 1994 Quarter Ended High Low High Low March 31 27.75 21 23.5 18.5 June 30 28.375 25.75 22.25 20 September 30 31 25.5 22.75 18.75 December 31 30.125 25.5 23.5 19.25 At December 31, 1995, the Company's common stock was held by approximately 20,000 shareholders of record or through nominee or street name accounts with brokers. The closing sale price for the Company's stock on January 26, 1996 was $26.25 per share. The Company's present policy is to retain earnings to support future business opportunities, rather than to pay dividends. MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of FIserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 1995 Annual Report. This information was prepared in conformity with generally accepted accounting principles and necessarily reflects the best estimates and judgment of management. To provide reasonable assurance that transactions authorized by management are recorded and reported properly and that assets are safeguarded, the Company maintains a system of internal controls. The concept of reasonable assurance implies that the cost of such a system is weighed against the benefits to be derived therefrom. Deloitte & Touche LLP, certified public accountants, audit the financial statements of the Company in accordance with generally accepted auditing standards. Their audit includes a review of the internal control system, and improvements are made to the system based upon their recommendations. The Audit Committee ensures that management and the independent auditors are properly discharging their financial reporting responsibilities. In performing this function, the Committee meets with management and the independent auditors throughout the year. Additional access to the Committee is provided to Deloitte & Touche LLP on an unrestricted basis, allowing discussion of audit results and opinions on the adequacy of internal accounting controls and the quality of financial reporting. /S/ GEORGE D. DALTON GEORGE D. DALTON Chairman and Chief Executive Officer INDEPENDENT AUDITORS' REPORT Shareholders and Directors of FIserv, Inc.: We have audited the accompanying consolidated balance sheets of FIserv, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of FIserv, Inc. and subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /S/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Milwaukee, Wisconsin February 2,1996